TIPS BULLETIN #13 28 ICFPB Amends Reg Z CARD Act Ability to Pay Rule

TIPS BULLETIN #13-28

To: All Credit Unions Subject: CFPB Amends Reg Z CARD Act “Ability to Pay” Rule

The material in this publication is provided for educational and informational purposes only, and does not constitute legal or financial advice. Use of any material or information in this publication should never be a substitute for seeking the advice of an attorney or a certified public accountant. Effective Date: May 3, 2013 Compliance Date: November 4, 2013 Background Regulation Z generally prohibits a card issuer from opening a credit card account for a consumer, or increasing the credit limit applicable to a credit card account, unless the card issuer considers the consumer’s ability to make the required payments under the terms of such account. Summary The Consumer Financial Protection Bureau is amending 12 CFR 1026.51 and the official interpretations to the regulation in order to address concerns that, in light of the statutory framework established by Truth in Lending Act (TILA)sections 150 and 127(c)(8), current § 1026.51(a) may be unduly limiting the ability of certain individuals 21 or older, including spouses or partners who do not work outside the home, to obtain credit. The final rule amends Regulation Z to remove the requirement that issuers consider the consumer’s independent ability to pay for applicants who are 21 or older, and permits issuers to consider income and assets to which such consumers have a reasonable expectation of access. The Bureau amended § 1026.51(a) in two related respects:

 First, the Bureau removed all references to an “independent” ability to pay from § 1026.51(a)(1) and the associated commentary.

 Second, the Bureau permitted issuers to consider income or assets to which an applicant or accountholder who is 21 or older and thus subject to § 1026.51(a) rather than § 1026.51(b) has a reasonable expectation of access.

The final rule has four main elements:

1. The final rule generally removes references to an “independent” ability-to-pay standard from § 1026.51(a)(1). As a result, card issuers are no longer required to consider whether consumers age 21 or older have an independent ability to pay; instead, card issuers are now required by Regulation Z to consider the consumer’s ability to pay. 2. In determining a consumer’s ability to pay, the final rule permits issuers to consider income or assets to which an applicant or accountholder who is 21 or older has a reasonable expectation of access.

3. The final rule continues to require in § 1026.51(b)(1)(i) that consumers under the age of 21 without a cosigner or similar party who is 21 years or older, have an independent ability to pay, consistent with TILA section 127(c)(8).

4. The final rule clarifies that application of the independent ability-to-pay standard to consumers under 21, consistent with Regulation Z, does not violate the Regulation B prohibition against age- based discrimination.

Examples of considering income: Assume that an applicant is not employed and that the applicant is age 21 or older so § 1026.51(b) does not apply:  If a non-applicant’s salary or other income is deposited regularly into a joint account shared with the applicant, a card issuer is permitted to consider the amount of the non-applicant income that is being deposited regularly into the account to be the applicant’s current or reasonably expected income for purposes of § 1026.51(a).

 The non-applicant’s salary or other income is deposited into an account to which the applicant does not have access. However, the non-applicant regularly transfers a portion of that income into the applicant’s individual deposit account. A card issuer is permitted to consider the amount of the non-applicant’s income that is being transferred regularly into the applicant’s account to be the applicant’s current or reasonably expected income for purposes of § 1026.51(a).

 The non-applicant’s salary or other income is deposited into an account to which the applicant does not have access. However, the non-applicant regularly uses a portion of that income to pay for the applicant’s expenses. A card issuer is permitted to consider the amount of the non- applicant’s income that is used regularly to pay for the applicant’s expenses to be the applicant’s current or reasonably expected income for purposes of § 1026.51(a) because the applicant has a reasonable expectation of access to that income.

 The non-applicant’s salary or other income is deposited into an account to which the applicant does not have access, the non-applicant does not regularly use that income to pay for the applicant’s expenses, and no Federal or State statute or regulation grants the applicant an ownership interest in that income. A card issuer is not permitted to consider the non-applicant’s income as the applicant’s current or reasonably expected income for purposes of § 1026.51(a) because the applicant does not have a reasonable expectation of access to the non-applicant’s income. 2 Additional Links Final Rule Questions If you have any questions regarding this information, please contact the Research and Information’s toll- free hotline at 877.243.5728.